Second-hand car dealer licensing in Scotland : issues and implications for consumer policy

Abstract

This thesis investigates the operation of a system of second hand car dealer licensing introduced to Scotland in 1982. The aim is to assess whether or not this policy is having a beneficial impact upon the experiences of second hand car purchasers in Scotland. The second hand car trade exhibits a number of characteristics of market failure with respect to consumer's interests. The complexity of the product and the infrequency of purchase make information about both product and dealer particularly difficult to obtain and evaluate. One regulatory response to consumer problems in this market is to licence second hand car dealers. This approach has been adopted in a number of other countries notably, Canada, Australia and some states of the US. The policy has provoked a great deal of debate about the achievement of consumer benefits associated with information and standards as opposed to producer benefits associated with restrictions to entry and mobility. In the Scottish case the power to licence second hand car dealers was delegated to Scottish district councils who were able to take advantage of considerable discretion in designing, implementing and operating their own licensing system. When seen from a national perspective, this delegation has led to a number of undesirable consequences. This thesis presents two major findings. The first is that district councils in Scotland have largely neglected their licensing systems. As a result the licensing of second hand car dealers in Scotland is only partially operative. The second is that second hand car dealer licensing in Scotland is having no impact upon the purchase experiences of consumers. There are two implications of these findings. First, without a fully operational system no evaluation of licensing as a policy is possible. Secondly, far from being unaffected by this partially operating system, consumers are worse off than without licensing. This raises issues for consumers, district councils and policy makers.